Eight-week market slide raises caution ahead of RBI policy

The persistent energy shock also stalled the multi-year global disinflation process, while higher diesel, jet fuel and natural gas prices put pressure on household savings and trade bal-ances in energy-importing countries

Spooked by elevated international crude oil prices amid renewed tensions in the Middle East, rising global bond yields, persistent foreign fund outflows and a weakening rupee; equity mar-kets extended their losing streak to the eighth consecutive week, marking the longest weekly de-cline in 25 years and surpassing the streaks seen during the 2020 Covid-19 crash and the 2008 global financial crisis.

For the week, the Sensex plunged 1,986.04 points, or 2.68 per cent, to 71,909.70, while the Nifty tumbled 718.55 points, or 3.10 per cent, to 22,421.95. Volatility expanded sharply alongside the decline in the benchmark indices. The Nifty Midcap 100 index declined 3.5 per cent and the Nifty Smallcap 100 index extended its losing streak for the fourth consecutive week, declining 3.3 per cent. FIIs accelerated their selling during the week, extending their selling streak to the sixth consecutive week, offloading equities worth Rs34,966.07 crore. Meanwhile, DIIs continued to provide support, purchasing equities worth Rs33,455.30 crore during the week.

The market selloff eroded nearly Rs15 lakh crore from the combined market value of BSE-listed companies during the week. After remaining rangebound during the first three days, the Indian rupee came under pressure on Thursday and moved closer to its record low of 96.96 to close at 96.32. During the week, the rupee traded in a range of 95.74–96.32 against the greenback.

India Manufacturing PMI rose to 55.1 in September from 52.8 in August, the strongest improve-ment in the health of the sector for seven months. However, August CPI inflation increased to 4.82 per cent, moving further above the RBI’s 4 per cent target and adding to concerns over the inflation outlook. In the last meeting, the RBI has retained the repo rate at 5.25 per cent with a neutral stance and projected FY27 GDP growth at 6.7 per cent.

The RBI Monetary Policy Committee is scheduled to meet from October 5–7, with the policy de-cision due on October 7. This event may keep interest-rate-sensitive pockets and the broader market somewhat cautious ahead of the announcement and could contribute to elevated intra-day volatility around the policy outcome. Closely track the RBI’s assessment of inflation, crude oil, the rupee and global financial conditions.

Market expectations have increasingly factored in the possibility of a 25-basis-point rate hike, although a hawkish hold also remains possible if the RBI prefers to assess incoming data. In the near term, the direction of crude oil, US bond yields and foreign flows will remain critical. Atten-tion will also centre on FOMC minutes and a run of Fed speeches for further clarity on the cen-tral bank’s reaction to recent data.

The geopolitical crisis in the Middle East had entered its eighth month and resulted in severe dis-ruptions to global commodity supplies, with Brent crude staying above $100 a barrel. The persis-tent energy shock also stalled the multi-year global disinflation process, while higher diesel, jet fuel and natural gas prices put pressure on household savings and trade balances in energy-importing countries.

However, until oil prices and global yields moderate, the market is likely to remain sensitive to global cues and policy signals. Q2 earnings season, changing market conditions and shifting risks across global markets make it important for investors to stay agile with their portfolio and asset allocation.

FUTURES & OPTIONS / SECTOR WATCH

Sustained selling pressure continued during the monthly settlement week amid elevated crude oil prices and persistent global uncertainties. Nifty declined more than 3 per cent on a weekly basis while Bank Nifty outperformed with a relatively moderate decline of over 2 per cent. The Nifty traded in a wide 862.95-point range before some recovery emerged from the lows.

In the options segment, strong Call open interest for Nifty was observed at the 22,700 and 22,800 levels while major Put open interest was concentrated at the 22,300 and 22,000 levels. For Bank Nifty, significant Call open interest was seen at 55,000 level whereas notable Put open interest was also placed at the 54,000 level. Implied volatility (IV) for Nifty’s Call options settled at 12.49 per cent while Put options concluded at 13.87 per cent. The India VIX, a key indicator of market vola-tility concluded the week at 13.49 per cent.

The Put-Call Ratio Open Interest (PCR OI) stood at 1.04 for the week. Nifty rollovers declined to 74.29 per cent from 77.39 per cent last month and remained below the three-month average of 76.48 per cent indicating relatively weaker rollover activity. Bank Nifty future rollovers were broadly stable at 79.31 per cent compared to 79.19 per cent last month and remained above the three-month average of 77.55 per cent. However, the index is trading below its 55,700–55,800 rollover zone making 55,800 a key resistance level. Re-sistance to the Nifty is expected at 22,600 and 22,800, while supports are placed at 22,200 and 22,000.

The near- oversold technical setup makes aggressive fresh shorts susceptible to a sharp counter- trend rebound. With the RBI policy decision on October 7 adding an event-risk dimen-sion to an already fragile technical setup, volatility may remain elevated. The preferred ap-proach for the week ahead is to remain stock-specific, light on leverage and disciplined with risk, while allowing the Nifty’s behaviour around its 200-week MA to establish whether the anticipat-ed technical rebound can develop into a more meaningful recovery.

Stocks looking good are Enrin (Siemens Energy), Kotak Bank, HDFC Bank, Powerindia (Hitachi En-ergy), Mankind and Sona Comstar.. Stocks looking weak are Adani Energy, Godfrey Phillips, Tata Power, Torrent Pharma, Patanjali and Vedanta.

(The author is a senior maket analyst and former vice-chairman, Andhra Pradesh State Planning Board)

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ABOUT THE AUTHOR

C Kutumba Rao

C Kutumba Rao